Rumors began circulating this week that HP was in talks concerning a possible buy-out of EDS. While neither EDS nor HP was willing yesterday to get specific on the talks HP did issue a press release on the subject yesterday stating, “HP today confirmed that it is engaged in advanced discussions with Electronic Data Systems Corporation regarding a possible business combination involving the two companies.”

“There can be no assurances that an agreement will be reached or that a transaction will be consummated. HP does not intend to comment further until an agreement is reached or discussions are terminated.”

The acquisition of EDS by HP makes sense to many since HP has openly stated that it intends to increase its reach as a service provider. EDS is one of the top service providers in the It industry and was one of the founders of IT outsourcing. EDS’ 2007 revenue was $22.1 billion and HP had stated revenues in 2007 of $104 billion making both companies big players in the IT industry.

HP announced today that it had come to an agreement between its board and the board of EDS to purchase EDS at $25 per share placing an approximate value on EDS of $13.9 billion. HP expects that the transaction will close in the second half of 2008 pending domestic and foreign regulatory approval.

HP plans to establish a new business group to be branded EDS- an HP company and EDS will continue to be headquartered at EDS' existing executive offices in Plano, Texas. EDS Chairman, President and CEO Ronald A. Rittenmeyer will continue to lead EDS after the deal closes and will answer directly to HP chairman and CEO Mark Hurd.

Hurd said in a statement, “The combination of HP and EDS will create a leading force in global IT services. Together, we will be a stronger business partner, delivering customers the broadest, most competitive portfolio of products and services in the industry. This reinforces our commitment to help customers manage and transform their technology to achieve better results."